Benjamin Felix

So it looks good for a bit, but not so good afterwards.

If you sold in 2000, we did great.

Correct.

Exactly.

If you timed the bubble perfectly.

This dimensional study finds that the poor returns are largely explained by the factors in the FOMA and French five-factor asset pricing model.

The IPO portfolio behaves like a portfolio of small growth, low profitability, high investment stocks.

also known as junk in AQR's language or small crap growth, as I've heard it called by some people.

These are types of stocks that they're more volatile and they tend to lag behind the broader market.

If you can choose to avoid them, you might want to.

A really interesting thing is that Dimensional's paper ends in 2018, but their finding is pretty easy to update and replicate because there are actually two ETFs that invest in IPOs.

So they invest in IPOs when they list and they hold them for three years and then sell them.

There's the Renaissance IPO ETF, which exclusively invests in large US IPOs.

And as I said, they hold them for three years and then sell them.

It has underperformed VTI, which just tracks the total US market by more than six percentage points annualized since inception in October, 2013.

As expected, if you run a quick regression, which I did in Portfolio Visualizer, it behaves like a portfolio of small stocks with high prices, low profitability, and aggressive asset growth.

And then there's another one that has international stocks.

This one has been listed since 2014.

Its ticker is IPOS, which I think is quite a comical or unfortunate ticker choice.

It's also underperformed by a wide margin relative to just an index.